Questions to ask a financial adviser
September 8, 2005
In a good market, most investors love their advisors. For the most part, the values of their investments are going up and all is right with the world. Investment performance and costs take a back seat to personality and service. But when a bad market rolls around, opinions can change sharply. All of a sudden performance and cost mean everything.
So how do you select an adviser? It’s not an exact science. Rather, it is a combination of demeanor, responsiveness and results. The right mix is determined by you. There is no precise formula in making a determination, but there are some questions that you can ask yourself so that you can come to a better understanding of what is important in a brokerage relationship.
The most important issue to consider is whether you trust your financial advisor. If you don’t, it’s a no-brainer – get a new one. Without trust, nothing else matters. If you don’t trust your financial adviser, you can’t be sure that you’re getting objective investment advice. Do you believe what your adviser tells you? Is important information being withheld? Do you understand the investment? The costs? The risks? Are the benefits being overstated? Are you comfortable or do you get the feeling that you are being deceived? If you are not comfortable, move on. You will be better off.
Do you feel that your adviser has your best interest at heart? You should feel secure that you are working with someone who is genuinely dedicated to your goals and success. Here is a test: Has your adviser ever tried to talk you out of an investment instead of taking the easy commission?
How your financial adviser handles bad news is also important. For example: When an investment loses money, does your advisor call you about it? Did you understand when you bought it that it could lose money? You need a guide who will give you an honest assessment of the situation. All financial advisers make mistakes. If we knew everything, we would be so rich that there would be no need for us to work, but when we are wrong, we need to own up to it. Good financial advisers own up to mistakes.
How about chemistry? This is a must. You have to have a good rapport with your adviser. Otherwise, the relationship is bound to be tense. Why deal with someone you don’t like? Do you hesitate to call your adviser when you need help or advice? If you are comfortable, confident, and at ease, if you enjoy doing business with your adviser, you are on the right track.
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I know that sometimes it is hard, but it is important that your adviser be responsive. I have refused to use the automated menu system in my office as I think it is very important that my clients get to speak to a “real person” as they have real questions and concerns.
When you have money to invest, does your adviser call with ideas? Does he or she call too often and offer inappropriate suggestions? When there is news about your investments, do you get notified? Is your adviser there when you call? Does he or she call and advise when you should sell as well as buy? When trades are executed, are you informed of the price? Commission? Options to exchange at no cost? Does your adviser review your investments periodically? Do you receive research? Do you understand the research?
I have found that service issues usually lead to lost accounts more than performance. Good service is not a favor, it is an obligation.
Does your adviser listen to you? This is really important as it determines your needs, objectives and risk tolerance. Does he or she ask good questions, listen, and respond? Kind of important, don’t you think?
A good adviser shouldn’t make a recommendation without determining your needs, objectives and feelings about risk. I know that it is hard for some clients to verbalize, it takes skill on our part to obtain this information.
It is vital that your adviser understands you. As a registered principal, I look at trades to determine if they are right for the client. Each person is different, so one size fits all investments are questionable.
Very important as well is having an adviser who has demonstrated knowledge of many types of investments and an established track record. Just because it is the only investment that the brokerage firms sells does not mean it is automatically right for you. Does the brokerage firm offer various and diverse investment choices? Are they limited on product? Research?
If your main interest is stocks, you want an adviser who watches the day-to-day movements of the market. If your interest is in bonds, you want an adviser who deals in them regularly and understands the bond market. Does he or she have a lot of bonds to offer with various maturities and credit quality? Can he or she go to other firms for inventory? You should get the bond that is right for you, not the one that your adviser just happens to have available.
If you are paying a full service fee or commission, are you getting what you pay for? This is a real hot button with me as I think that if you are doing a lot of the research yourself and that includes buy and sell timing or your adviser has difficulty answering your questions, you may want to look elsewhere. You need to understand your fees.
These days, with uncertainty in the marketplace, it pays to be aware of the true dollars and cents value of the advice that you receive. The bottom line is performance.
Examine how the investments your adviser has recommended over time have done. Did you make money? Could you have done better with your money in a savings account at the bank? If so, it may be time to get another adviser. Don’t make any short-term judgments about your adviser if you are long in the market.
There is a final revealing question you need to be asking. Are you achieving your investment goals? Be fair to your adviser here. If your stated objective is to earn 8 percent in the tax free market and you have, you should be pleased, even if you could have made more money in another investment. You would have assumed greater risk. If your stock is down and the overall market is down, it is not necessarily your adviser’s fault, but if you are consistently down or really underperforming the market and your risk tolerance has not changed, you may need new advice.
If you take all of the things I have mentioned, it should help you in selecting an adviser. Not all advisers may be as fabulous as me ( well, maybe a few), but you deserve to have the best. It is , after all, your money. I can be contacted at 841-4277.
– Carol Perry, a Northern Nevada resident since 1983, represents the firm of Wachovia Securities in Carson City.